Befriend Bonds Before Auction: Strategist

CNBC.com

Tuesday, 23 Jun 2009 | 5:22 AM ETCNBC.com

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Incoming auctions of government bonds and the recent retreat in the stock markets are crowding investors into bonds, and maybe this is a good choice for a while, David Keeble, head of fixed-income strategy at Calyon, told CNBC.

"We've got the highest correlation between bond yields and equity markets since October last year when Lehman's was going bust," Keeble told "Squawk Box Europe."

"There's conviction here that you want to be jumping into the bond market. I think it's quite an easy trade to do when you've just backed up from just over 2 percent (yield) to nearly 4 percent," he added. "It's quite easy to say I'll just sit here for a little bit… and ride out to see what happens."

Bond prices rallied on Monday because of a big selloff in stocks, with even the 2-year Treasury note increasing despite the record auction of $40 billion 2-year notes scheduled for Tuesday.

Investors have "capitulated" short positions in bonds, at least until the meeting of the Federal Reserve's monetary policy committee later in the week, Keeble said.